The concept of strategic business units - Marketing Management

The focus is on strategic analysis and the ensuing strategic marketing plans within the business are for individual SBUs. Having said this, it means that at corporate planning level, decisions must be made regarding the balance between different individual SBUs in the business, and in particular, the allocation of resources between them. However, strategic marketing plans in a multiproduct/ multi-market business can only be developed at the level of each SBU. The SBU concept is thus crucial to the strategic marketing planner, so it is essential to organize the business into identifiable SBUs.

Increasingly, the contemporary organization is large and complex, encompassing potentially many product lines sold in diverse markets to different customer groups. Different parts of a business each need a strategic marketing plan reflecting different requirements of each product market. The American company General Electric is generally acknowledged to be the first company to have dealt with this requirement for individual strategic marketing plans in its large diversified company by organizing business in separate SBUs.

In practice, identifying and delineating a business into SBUs is a complex task and the precise ways in which this will be achieved will depend on several factors which are individual to each organization. For example, the size of each product market in the business and the extent of commonalities between the different product markets. Ideally, however, an SBU should meet the following criteria:

It should have its own customers and competitors;

It should, in theory, be able to be operated as a separate individual business;

It should have its own resources and its own identifiable costs and revenues;

It should have a manager who is responsible for profitability of the business.

The Swiss multi-national Nestlé organizes its worldwide operations around a series of SBUs. Each SBU has full responsibility for the development of its own strategic marketing plans. SBUs are based on the different product areas within Nestlé. For example, there is an SBU covering confectionery and ice cream products throughout the world, another one for milk products, and so on. Although increased organizational size and complexity has served as a distinct spur to strategic approaches to marketing, it is not suggested that such an approach is only appropriate for large diversified companies. Small companies also need a strategic approach, as they are often faced with a less certain external or macro-environment than large companies.

Increased competition

Apart from a small number of exceptions such as state-protected or ‘natural’ monopolies, most organizations throughout the history of commerce and trade have faced competition, both existing and potential. However, as with environmental change, recent years have witnessed an intensifying of competition in many markets. Successful marketing in a competitive economy is about competitive success and positioning and customer focus. Many factors have contributed to this but amongst some of the more significant are the following:

a growth of global competition as barriers to trade have been lowered and global communications improved;

linked to the above, the role of the multinational conglomerate which ignores geographical and other boundaries and looks for opportunities on a global scale;

in most economies, legislation and political ideologies which have aimed at fostering ‘free market’ entrepreneurial values;

continual technological innovation, giving rise to new sources of competition for established products and markets.

Successful marketing in a competitive economy is about competitive success and positioning and customer focus.

HMV, the music store chain, was one of the first music retailers to introduce new systems of display and merchandizing in the UK. Recognizing the growing threat from new technology, it launched a transactional website in the UK. Unlike many competitors who shunned internet marketing, HMV supported its use to promote music and stay ahead of competition. From the early days of a few individuals beginning to exchange music on the Internet, downloading music is now big business. There are estimated to be currently over 500 websites, both legal and illegal, where music can be downloaded. This is in addition to music swapping between private individuals. Many in the music industry initially fought against this development, particularly the record companies, but as demand increased and technology such as MP3 and broadband speeds improved they were no longer able to resist. The launch of iTunes was significant in this respect and gave the boost for music downloading to go mainstream. Now the music industry is replete with artists, record companies, electronic product companies and music retailers looking for new ways to find a competitive edge in the music downloading market. Music downloading is here to stay. From an initial fear of this development in the industry most of the industry is now distinctly upbeat about it.

These are the key reasons why a strategic perspective on marketing is so important. What is meant by a strategic approach and what elements does this contain? It is to this issue that we now turn our attention by examining the nature of strategy and strategic management.